“Disruptive” is another common buzzword, albeit one that has been around for a while. In business, “disruptive” mostly relates to new processes or technologies that emerge and are either superior, less expensive, or superior and less expensive than existing processes or technologies. The late, great Harvard Business School professor Clayton Christensen made “disruptive” a buzzword when he wrote about the process of disruption in his 1997 book “The Innovator’s Dilemma.” In today’s economy, hydraulic fracturing in the oil industry is an example of a disruptive process, and the Tesla is example of a disruptive product.
Are You Disruptive?
Are you a disruptive person by nature? Do you like to cause trouble, or stir the pot? Whether you are or not may be a function of your stage in life. Younger people tend to like to be more disruptive, whereas older people tend to conform just to make it easy on their lives. It is neither good nor bad to be disruptive as long as you follow the rules and don’t hurt other people unfairly.
Do You Invest in Disruptive Companies?
However, even if you don’t view yourself as a disruptive person, as an investor, you need to understand the nature of disruption, which companies are the disruptors and which are being disruptive, and invest somehow in those disruptive companies. Why is that so? Because disruptive companies are leaving “old technology” companies in the dust. According to this article from The Street, the top 10 companies in the S&P 500 Index account for all of its growth this year, and the remaining 490 companies’ stocks are cumulatively underwater. All of the top 10 are disruptive companies such as Apple, Microsoft, Facebook, and Alphabet/Google. On the other hand, ExxonMobil, though still part of the S&P 500, was dropped from the Dow Jones Industrial Index of 30 stocks because XOM has not kept up with the pace of the disruption in the energy sector. An investor these days has to invest in disruptive companies just to keep up and not fall behind in meeting their financial goals.
The Good News
The good news is that there is a relatively easy way to invest in disruptive companies, and that is just by investing in index funds, especially the tech-heavy Nasdaq 100 Index. You don’t have to be an electrical engineer working at a venture capital company and be a seed investor in start-up companies in order to invest in disruptive companies. Disruption has now gone mainstream. Even the traditionally anti-tech, stick-in-the-mud Warren Buffett’s Berkshire Hathaway invested an estimated $730 million in the Snowflake IPO earlier this week. So, even if you just own the S&P 500 Index through your IRA or 401k account at work, you own Berkshire Hathaway through your ownership of that index, and you in turn own a part of the new hot IPO Snowflake.
Currently we are in the middle of the pandemic which is an agent for even more disruption. Consider that companies are trying to make do with their employees working from home and how that disrupts many aspects of our economy such as the future need for traditional office space as well as the need for the technical infrastructure to make the work-at-home economy happen. Companies whose processes or products enable the Covid economy to transact are doing well but companies that depend on the pre-Covid world are in great difficulty.
“Disruptive” is a buzzword for a good reason, and that is because disruption is the driving force behind all of the growth in today’s economy. Because of Covid, the pace of disruption will likely accelerate even more. If you want to grow or even just maintain your portfolio to meet your financial goals, then you need to be investing in disruptive companies, even if it is through index funds.